Assessing Corvex Management's activist stance on ARCP (Part 5 of 7)
ARCP’s Cole Capital segment manages non-traded REITs
As highlighted previously, American Realty Capital Properties (ARCP) is a self-managed commercial REIT that hedge fund Corvex Management has taken an activist stake in. In this article, we’ll discuss ARCP’s private capital business, Cole Capital.
ARCP owns aggregate equity investments of $3.9 million in publicly registered, non-traded REITs. Cole Capital is contractually responsible for managing the REIT’s affairs on a day-to-day basis, and identifying and making acquisitions and investments on the REIT’s behalf. Cole also recommends an approach to each of the REIT’s respective boards for providing investors with liquidity. Its non-traded REITs are:
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Cole Credit Property Trust IV, Inc. (CCPT IV)
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Cole Corporate Income Trust, Inc. (CCIT)
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Cole Real Estate Income Strategy (Daily NAV), Inc. (INAV)
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Cole Office & Industrial REIT, Inc. (CCIT II)
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Cole Credit Property Trust V, Inc. (CCPT V)
ARCP acquired Cole via a $11.2 billion merger agreement in October 2013. Through the Cole acquisition, the company aimed to create the largest net lease REIT with an enterprise value of $21.5 billion, higher than its peers Agree Realty Corporation (ADC), Chambers Street Properties (CSG), Spirit Realty Capital (SRC), National Retail Properties (NNN), and others. After the completion of the acquisition in February last year, ARCP said more than 49% of annualized rents are now generated from investment grade tenants.
Cole stated that it invests mainly in “income-producing, strategically located core commercial real estate across the retail, office and industrial sectors.”
Non-traded REITs have gained popularity
As per Cole’s website, non-listed REITs offer the benefits of listed REITs, but because they are not traded on an exchange, “they offer the added benefit of a low degree of correlation to the broader securities markets.” Cole sells the shares directly to investors via a network of broker-dealers.
Non-traded REITs have gained popularity because of higher dividend yields than listed REITs and a steady income. The Wall Street Journal cited data from a report last year by Green Street Advisors, and said non-traded REITs saw average annualized returns of 10.9% compared to 14.5% for listed REITs. Robert A. Stanger, the investment bank that the Wall Street Journal cited, said around 30 non-traded REITs have undergone the complete cycle of raising funds, buying properties, and then liquidating.
CCIT portfolio sold to Select Income REIT